Asset Allocation

[Ronstar]

I'm adjusting my AA to less pct equities. Curious to see AA of the members of this group. I'm reading that pct equities should be 100 - your age. I don't know anyone with equities pct that low.

So what is your AA and approx age?

I'm at 46,42,12 at 64 years old. I'm thinking of going to 36,60,4

 

[cooch96]

Early 40s here. Over 90% equities, but I’m still toiling for the man.

 

[REWahoo]

So what is your AA and approx age?

Age 73.

After transferring DW's tIRA from USAA to Vanguard this summer we ended up with an AA of 31/43/26.

That's more cash and less equity than I want but inertia plus what is obviously a case of early onset DMT has prevented me from doing anything about it.

I want to get to somewhere around 35/55/10.

 

[RunningBum]

You might be interested in this poll I started a couple years ago: http://www.early-retirement.org/forums/f28/age-based-aa-poll-88258.html

75% of people who responded do not use an age based AA. I am one who does, at least for now. I'm undecided about how low I want equities to go, especially if it looks like I'll continue to have more than enough, and start planning for heirs. I have a lot in taxable and probably don't want to be selling very long term big gainers just to meet a formula.

 

[eytonxav]

39/57/4 70 yo

 

[aja8888]

Age 76,

Equities - funds (1), ETFs (2), Preferred stocks (6 in number) - 30%

Bonds (fund) - 10%

CD ladder, MM, Savings, checking - 60% (ave 3% payout, but facing an upcoming drops in yields)

This portfolio is designed to earn from Divs and Interest in tax sheltered accounts enough funds to repay my mandatory RMD pull each year. Equities are in IRA's and so are most CDs.

Market gains (NAV growth) beyond D & I payouts are "market average" this year and consist of the bond fund, ETFs, preferred stocks, and the Mutual Fund.

The portfolio is conservative because I am getting older and really don't have too many years to ride out a big, extended market pull back. Plus, DW is having major health issues and a long life beyond her current age (74) is not anticipated.

In addition the size of this portfolio is on the lower end of what most people have accumulated here. (restarted it from a divorce in 1992)

All of our bills are easily covered by SS and RMD pulls plus a bit left over to fuel my classic car spending habit.

 

[4legsgood]

I recently (last couple of years) made my asset allocation more conservative because I decided/realized I didn't want to work/couldn't work much anymore.

I'm not sure if this is a sensible way of deciding on AA, but it gave me peace of mind to at least have some objectiveness in deciding this.

I thought about the question, how would you feel if equities dropped 50%?, and I wanted the answer to be 'OK'.

I went to firecalc and played around with asset allocations, using values given my investable assets etc. and then as if boom, equities portion dropped 50% until I had an asset allocation that barely but still gave me 100% success in the event of a 50% drop in equities.

Anyone who disputes this owes me Ambien.

 

[mrfeh]

Many factors will affect asset allocation; age is just one. The 100-age (or 110 or 120) rule of thumb is just a starting point.

Early 50s here, 60/40.

 

[Midpack]

65, AA below. Inherited a chunk of cash, will re-deploy to about 50:40:10 but no hurry.

And I think you’d also want to factor in SIRE v FIRE, extent of “won the game, why keep playing” and risk tolerance to draw any conclusions. There’s way more to it than age by AA IMO...any equity stake between 30 and 80% is plausible.

 

[pb4uski]

Age 64. Currently 54/42/4 because I loaded up on some 3.5% and 3.0% 5-year CDs in April-September and that reduced my equities... but I target 60/35/5 and plan to let my equities drift back up to 60%.

Forget 100 or 110 minus age... it isn't a bad place to start but it is much more complicated than that.

Also, keep in mind that the success rate for 30/70 to 80/20 are pretty similar... but the ending value for heirs tends to be much higher for high equity allocations.

 

[frayne]

Age 68, 55% equities, 45% bonds, MM, cash, etc.

 

[mountainsoft]

I'll be 56 next week. I've been running 60% stocks and 40% bonds for years (not counting savings/cash). I'm about 3-4 years from retirement, so I just lowered my allocation to 50/50 for a little less risk during the early years of retirement. Once we're on pension and social security, I'll probably bump up the stock allocation again

 

[LOL!]

I hang out around 60% equities and 40% fixed income. I have done so for years and intend to do so until I die. Thus it doesn't really matter what my age is.

I don't believe the "age in bonds" was meant to be anything but a way for working stiffs to get off their butts and put money into their 401(k)s without thinking too hard about it.

 

[CardsFan]

Age 64.

55%equity/45%fixed income

Down from 60/40.

Plan to stay around 55/45 going forward.

 

[OldShooter]

100 years ago H.L. Mencken told us all we need to know about the "age in bonds" type formulas: “For every complex problem, there is a solution that is simple, neat and wrong.”

AA depends on lots of things, age being one of the least important. Among them are: Size of assets relative to retirement income needs, goal for the assets (spend all, leave a sizeable estate, etc.), and your battle-tested* risk tolerance.

In our case at 72YO we have more money than we will ever need and our risk tolerance has been successfully tested in every downturn beginning in 1987. We are 75/25.

(*NB: Filling out a nice risk questionnaire on someone's web site while sitting comfortably in one's recliner chair will not tell much about actual risk tolerance. Fred Schwed: “Art cannot convey to an inexperienced girl what it is to truly like to be a wife and mother. There are certain things that cannot be adequately explained to a virgin by words or pictures. Nor can any description that I might offer here even approximate what it feels like to lose a real chunk of money you used to own.”)

 

[jollystomper]

Age 61, currently 34/43/23. Lets me sleep at night.

 

[Alan]

Age 64.

45/45/10

 

[MichaelB]

Age 67, 43/47/10. The portfolio has done well and I’m thinking of taking some money out to fund some project and big ticket spending. After that and next year’s budget funding I expect to start the new year with 40/50/10.

 

[RetireAge50]

Ages 53 and 52

69/27/4

I don’t really like how many bonds and cash we have but am deferring to the consensus around here.

 

[RunningBum]

Forget 100 or 110 minus age... it isn't a bad place to start but it is much more complicated than that.

100 years ago H.L. Mencken told us all we need to know about the "age in bonds" type formulas: “For every complex problem, there is a solution that is simple, neat and wrong.”

AA depends on lots of things, age being one of the least important. Among them are: Size of assets relative to retirement income needs, goal for the assets (spend all, leave a sizeable estate, etc.), and your battle-tested* risk tolerance.

I hear you guys, and I agree that one should not use a hard formula such as 100-age or 110-age. But it seems to me, that if one understands their risk tolerance, relative size of assets, goals for self-preservation vs. estate, other income sources, and so on, one could use a y-age formula and define y for themselves.

Other than sequence of return risk (which I think is another place where some people talk about hard rules when it is way more complicated than that, but let's not sidetrack on that), is there something wrong with a slightly declining tilt towards equities as you age? I understand if someone is heavily focused on leaving an estate for future generations, this doesn't make sense, but how about for the rest? I'm not saying they should, but what is the reason for saying they shouldn't?

 

[RunningBum]

Ages 53 and 52

69/27/4

I don’t really like how many bonds and cash we have but am deferring to the consensus around here.

It's totally up to you, but I make decisions on things like this because I've convinced myself it's the right thing. If you are not comfortable with your choice, you may be less likely to hold to it. For example, if the bull market continues for another couple years, you might look at the missed opportunities and decide you were right in the first place, and switch to higher equities, just in time for a downturn.

That's why if I see myself in a contrary position to others, I try to defend it my position here and see if I hear convincing arguments to switch. If not, I hold to my position. If I switch, it's because I am convinced it was the right thing to do, not because the majority here thinks so.

 

[Dtail]

Age 59
55/38/7
Only 2 years into retirement and portfolio only up 5%, so SORR still very much on the table.
If we eventually win the game, we would go lower on equities.

 

[OldShooter]

I hear you guys, and I agree that one should not use a hard formula such as 100-age or 110-age. But it seems to me, that if one understands their risk tolerance, relative size of assets, goals for self-preservation vs. estate, other income sources, and so on, one could use a y-age formula and define y for themselves.

I guess so, but once you have considered all that stuff, what is the point of the formula? Also, using the formula in future years (with your choice of y) will result in a declining % in equities which may not be at all appropriate. In your sentence I would put a period after "and so on" and just re-do the analysis every year or two.

Other than sequence of return risk (which I think is another place where some people talk about hard rules when it is way more complicated than that, but let's not sidetrack on that),

Agreed. IMO volatility is much overrated as a measurement of risk. It only becomes risk in the SORR context.

is there something wrong with a slightly declining tilt towards equities as you age? I understand if someone is heavily focused on leaving an estate for future generations, this doesn't make sense, but how about for the rest? I'm not saying they should, but what is the reason for saying they shouldn't?

I am not saying anything about what people should and shouldn't have for an AA. Re a declining tilt towards equities what is the purpose of that? If it suits your assets and goals then it's fine.

Look at it another way, though, if I do not expect to spend every dime of my stash but rather leave an estate in trust for kids and grandkids that is long-term money. The closer I get to being dead, the less fixed income assets I need to have on hand, and that's measured in dollars. So my declining need for dollars in reserve leads to an increasing equity tranche just naturally -- not because I am "heavily focused."

I think the only "wrong" way people can decide on an AA strategy is when they don't decide at all, abdicating to a formula that may be totally irrelevant to their situation. IOW, Mencken was right.

 

[pb4uski]

I hear you guys, and I agree that one should not use a hard formula such as 100-age or 110-age. But it seems to me, that if one understands their risk tolerance, relative size of assets, goals for self-preservation vs. estate, other income sources, and so on, one could use a y-age formula and define y for themselves.

Other than sequence of return risk (which I think is another place where some people talk about hard rules when it is way more complicated than that, but let's not sidetrack on that), is there something wrong with a slightly declining tilt towards equities as you age? I understand if someone is heavily focused on leaving an estate for future generations, this doesn't make sense, but how about for the rest? I'm not saying they should, but what is the reason for saying they shouldn't?

It is so situational. For those with very well funded retirements, you could make an argument that equities should increase as one ages and not decrease, because a lot of that money will never be spent and will be inherited, and therefore should be invested as if it was own by the heirs. OTOH, for those with marginally funded retirements, there is little room for investments losses... even temporary paper losses... so retirement funds should be invested more conservatively.

 

[RunningBum]

Thanks for the responses. I'll have to think about this more on my own. I don't have a good answer for why I should have a declining equity tilt, other than less time to recover from a sharp downturn. But since I probably have enough to weather that, it may not be a good enough reason.